Analysts at UBS have lowered their price target for Paramount Global (NASDAQ:PARA) stock ahead of the company's second quarter earnings on August 7.
The Street expects the media and entertainment giant to report earnings per share (EPS) of $0.07 on revenue of $7.48 billion, down from EPS of $0.64 on revenue of $7.78 billion in the year-ago quarter.
In a note to clients, the UBS analysts wrote that they expect earnings before interest, taxes, depreciation, and amortization (EBITDA) declines to remain elevated during the quarter driven by pressure on TV advertising/affiliate and higher marketing expenses for film, while direct to consumer (DTC) sees similar dilution.
“We expect 5% revenue and 50% EBITDA declines in 2Q and model better trends in 2H23 as cost reductions/DTC price increase flow through,” they wrote.
The analysts also lowered their TV ad expectations for the second half of 2023 given current macro challenges.
“We now look for 2% revenue growth and 33% EBITDA declines in fiscal 2023 as DTC dilution peaks, National Football League (NFL) costs step up and cyclical items are lapped but expect free cash flow trends to be more resilient depending on the length of the writer’s strike, limiting spend on production,” they wrote.
Regarding subscription growth for the company’s streaming service Paramount+, the analysts expect seasonally softer additions for 2Q.
“We look for 1 million Paramount+ net adds in 2Q, 2 million prior, versus 4 million last quarter and 4 million in 2Q22 and expect a pick up later in the year,” they wrote.
“We expect DTC subscription revenue growth to decelerate but remain healthy in 2Q (UBS estimate of 38% versus 50% in 1Q), before average revenue per user/revenue growth re-accelerates in 3Q alongside price increases. We also expect DTC ad growth to further accelerate as the market recovers.”
The UBS analysts lowered their price target on Paramount from $15 to $14 with a ‘Sell’ rating. Paramount shares traded at US$16.51 on Thursday afternoon.
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